I asked this in the exam 6 thread but I think it'd be more appropriate here.

I'm currently working on creating an RBC model and I was just wondering which component (R0 - R5), tend to be the biggest contributor to lowering the RBC score? I mean, which component could easily lead to the lower RBC?

Is it R5 (underwriting risk - premium) since companies can write more business easily than, let's say, have more unaffiliated bonds or stocks?

Thanks in advance.

I'm curious as to what answer you got from your colleague. I would have indicated underwriting risk if the company leans toward more property, and reserve risk if the company has more casualty. The other risk factors, even collectively, are generally less relevant than these two. The covariance adjustment to U/W and Resv risk is likely larger than the other risk factors. ( I don't have the R numbers memorized, and I'm not going to look them up.)

Reserve risk tends to be less for property because the average payout is (much) shorter than casualty. Raising reserves is a double whammy: first it reduces surplus so the denominator of the ratio is smaller; secondly more reserves call for more risk margin.

I'm curious as to what answer you got from your colleague. I would have indicated underwriting risk if the company leans toward more property, and reserve risk if the company has more casualty. The other risk factors, even collectively, are generally less relevant than these two. The covariance adjustment to U/W and Resv risk is likely larger than the other risk factors. ( I don't have the R numbers memorized, and I'm not going to look them up.)

Reserve risk tends to be less for property because the average payout is (much) shorter than casualty. Raising reserves is a double whammy: first it reduces surplus so the denominator of the ratio is smaller; secondly more reserves call for more risk margin.

The part where I had to ask a colleague was for determining the correct "group-level" GWP needed to calculate the risk charge for "excessive premium growth."

As for what you're wondering, someone mentioned here that the relative contribution to the total RBC between R4 and R5 depends on whether you're a commercial or personal writer.

IIRC, commercial tends to have a bigger factor from reserve risk while personal tends to have more coming from premium written risk.

I think there are other factors to consider so this isn't always true.